The One Big Beautiful Bill Act (OBBBA) creates new income tax deductions for tax years 2025 through 2028 for qualified cash tips and overtime compensation. If you receive tips or overtime pay, you likely have questions about whether you’re eligible for a deduction and how big it might be.

The IRS has issued guidance on how workers can determine the amount of their deductions for 2025, because employers aren’t required to provide detailed information on tips income or overtime compensation until the 2026 tax year. Here’s an overview of what you need to know.

The new deductions

Rather than eliminating taxes on all tips income and overtime compensation, the OBBBA establishes partial deductions available to both itemizers and nonitemizers, subject to income-based limitations. Qualified tips income and overtime compensation remain subject to federal payroll taxes and state income and payroll taxes where applicable. Moreover, because the tax breaks are in the form of deductions claimed at tax time, employers must continue to withhold federal income taxes from employees’ paychecks.

For qualified tips, you may be able to claim a deduction of up to $25,000. “Qualified tips” generally refers to cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. The tips must be paid voluntarily, without any consequence for nonpayment, in an amount determined by the payor and without negotiation.

Proposed IRS regulations identify 68 eligible occupations within the following categories:

• Beverage and food service,
• Entertainment and events,
• Hospitality and guest services,
• Home services,
• Personal services,
• Personal appearance and wellness,
• Recreation and instruction, and
• Transportation and delivery.

The tips deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married filing jointly. The deduction is completely phased out if your MAGI reaches $400,000, or $550,000 if you’re a joint filer.

The overtime deduction is limited to $12,500, or $25,000 if you’re a joint filer. A phaseout begins if your MAGI exceeds $150,000, or $300,000 if you’re a joint filer. The deduction is completely phased out if your MAGI reaches $275,000, or $550,000 if you’re a joint filer.

The overtime deduction is available for overtime pay required by the Fair Labor Standards Act (FLSA), which generally mandates “time-and-a-half” for hours that exceed 40 in a workweek. Notably, though, the deduction applies only to the pay that exceeds the regular pay rate — that is, the “half” component.

Because the FLSA definition of overtime varies from some state law definitions, overtime pay under state law might not be deductible. And the deduction doesn’t apply to overtime paid under a collective bargaining agreement or that an employer pays in excess of time-and-a-half (for example, double-time).

The tips deduction calculation

Employers won’t be required to include the total amount of cash tips reported by the employee and the employee’s occupation code on Form W-2 until the 2026 tax year. So, for 2025, according to the IRS, if you’re an employee, you can calculate your tips deduction using:

• Social Security tips reported in Box 7 of Form W-2,
• The total amount of tips you reported to your employer on Forms 4070, “Employee’s Report of Tips to Employer,” or similar forms, or
• The total amount of tips your employer voluntarily reports in Box 14 (“Other”) of Form W-2 or a separate statement.

You may also include any amount listed on Line 4 of the 2025 Form 4137, “Social Security and Medicare Tax on Unreported Tip Income,” filed with your 2025 income tax return (and included as income on that return). Note that you’re responsible for determining whether the tips were received as part of an eligible occupation. If your employer opts to provide this or other relevant information in Box 14 (“Other”) of Form W-2, you may rely on it.

Tips also won’t be required to be reported on Forms 1099 until the 2026 tax year. For 2025, if you’re an independent contractor, you can corroborate the calculation of your qualified tips with:

• Earnings statements,
• Receipts,
• Point-of-sale system reports,
• Daily tip logs,
• Third-party settlement organization records, or
• Other documentary evidence.

Note: Nonemployees must confirm that their tips were received from an eligible occupation.

The overtime deduction calculation

Employers won’t be required to include eligible overtime pay on Form W-2 until the 2026 tax year. So for 2025, if you’re an employee, you can self-report your overtime compensation for the overtime deduction.

According to the IRS, you must make a “reasonable effort” to determine whether you’re considered to be an FLSA-eligible employee. The IRS says this may include asking your employers or other service recipients about your FLSA status.

To calculate the deduction amount, you must use “reasonable methods” to break out the amount of overtime pay that qualifies. For example, if you were paid time-and-a-half and receive a statement with your total amount for overtime (regular wages plus the overtime premium), then you can use one-third of the total. If you were paid double-time and receive such a statement, you can multiply the total dollar amount by one-fourth to compute the qualifying overtime pay.

A tax-saving opportunity

If you might be eligible for the tips or overtime deduction, don’t miss out on this tax-saving opportunity just because your deduction may be difficult to calculate. We’re here to help. If you’re an employer with employees who receive tips or overtime income, we can also provide guidance on how to answer employee questions for 2025 and how to ensure you’re in compliance with reporting requirements for 2026.

© 2025

For 2025 through 2028, individuals age 65 or older generally can claim a new “senior” deduction of up to $6,000 under the One Big Beautiful Bill Act (OBBBA). But an income-based phaseout could reduce or eliminate your deduction. Fortunately, if your income is high enough that the phaseout is a risk, there are steps you can take before year end to help preserve the deduction.

Senior deduction basics

You don’t have to be receiving Social Security benefits to claim the senior deduction. If you’re age 65 or older on December 31 of the tax year, you’re potentially eligible.

If both spouses of a married couple filing jointly are age 65 or older, each spouse is potentially eligible for the $6,000 deduction, for a combined total of up to $12,000. But you must file a joint return; married couples filing separately aren’t eligible.

Combining the senior and standard deductions

Taxpayers age 65 or older already are eligible for an additional standard deduction on top of the basic standard deduction. The following examples illustrate how large the three deductions can be on a combined basis for 2025:

Single filer. An unmarried individual age 65 or older can potentially deduct a total of up to $23,750: $15,750 for the basic standard deduction plus $2,000 for the additional standard deduction for a senior single filer plus $6,000 for the new senior deduction.

Joint filer. If both members of a married couple are age 65 or older, they can potentially deduct a total of up to $46,700: $31,500 for the joint filer basic standard deductions plus two times $1,600 for the additional standard deductions for senior joint-filers plus two times $6,000 for the new senior deduction.

How the phaseout works

The senior deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers or $150,000 for joint filers. The deduction is eliminated when MAGI exceeds $175,000 or $250,000, respectively. Specifically, the deduction is phased out by 6% of the excess of your MAGI over the applicable phaseout threshold. For this purpose, MAGI means your “regular” AGI increased by certain tax-exempt offshore income (which most taxpayers don’t have).

Here are two examples:

Example 1. For 2025, you’re a single individual age 65 or older. Your MAGI for the year is $130,000. Under the phaseout, your senior deduction is reduced by $3,300 [6% × ($130,000 − $75,000)]. So your senior deduction is $2,700 ($6,000 − $3,300).

Example 2. For 2025, you and your spouse file jointly. You’re both age 65 or older. Your MAGI for the year is $220,000. Under the phaseout rule, your two senior deductions are reduced by $4,200 each [6% × ($220,000 − $150,000)]. So your senior deduction is $1,800 each ($6,000 − $4,200), or $3,600 on a combined basis.

Year-end planning tips

If you’re concerned your 2025 MAGI could exceed the applicable phaseout threshold — or that your senior deduction could be completely phased out — there are moves you can make by December 31 to help maximize your deduction. Specifically, take steps to reduce your MAGI. Here are some potential ways to do it:

• Harvest capital losses in taxable brokerage accounts to offset capital gains that would otherwise increase your MAGI.
• Defer selling appreciated securities held in taxable brokerage accounts to avoid increasing your MAGI by the capital gains you’d recognize if you sold them.
• If you’re still working, maximize salary-reduction contributions to tax-deferred retirement accounts, like your traditional 401(k), which will reduce your MAGI.
• Defer or spread out Roth IRA conversions over several years, because your MAGI will be increased by taxable income triggered by the conversions.
• If you’re age 73 or older and thus subject to required minimum distributions (RMDs) on your traditional IRA(s), consider making IRA qualified charitable distributions (QCDs). Done properly, the QCDs will count toward your RMD and will be excluded from your taxable income and your MAGI.

Depending on your situation, there may be other moves you can make that will reduce your MAGI.

A valuable tax saver

The new senior deduction can be a valuable tax saver for eligible taxpayers. Please contact us with any questions you have. We can help you determine the best year-end tax planning strategies for your particular situation.

© 2025

With Notice 2025–67, the IRS has issued its 2026 inflation-adjusted retirement plan contribution limits. Although the changes are more modest than in recent years, most retirement-plan-related limits will still increase for 2026. Depending on your plan, these adjustments may provide extra room to boost your retirement savings.

*Starting in 2026, the SECURE 2.0 Act requires the catch-up contributions of higher-income taxpayers to be treated as post-tax Roth contributions. Generally for 2026, the requirement will apply to taxpayers who earned more than $150,000 during the prior year. However, new final regulations state that the deadline for plan amendments to implement this change is December 31, 2026. So there might not be any adverse consequences for plans that continue to allow non-Roth account catch-up contributions for higher-income taxpayers in 2026.

Your modified adjusted gross income (MAGI) may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits will all increase for 2026:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

• For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
  • For a spouse who participates, the 2026 phaseout range limits will increase by $3,000, to $129,000–$149,000.
  • For a spouse who doesn’t participate, the 2026 phaseout range limits will increase by $6,000, to $242,000–$252,000.
• For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2026 phaseout range limits will increase by $2,000, to $81,000–$91,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,500 contribution limit for 2026 (plus $1,100 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies.

Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

• For married taxpayers filing jointly, the 2026 phaseout range limits will increase by $6,000, to $242,000–$252,000.
• For single and head-of-household taxpayers, the 2026 phaseout range limits will increase by $3,000, to $153,000–$168,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for traditional and Roth IRAs.)

When reviewing your retirement plan, be sure to take these 2026 contribution limits into account. We can help you review your retirement plan and make any necessary revisions.

© 2025

Saving taxes probably isn’t your primary reason for supporting your favorite charities. But tax deductions can be a valuable added benefit. If you donate long-term appreciated stock, you potentially can save even more.

Not just a deduction

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits.

First, if you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value. Second, you won’t be subject to the capital gains tax you’d owe if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

The strategy in action

Let’s say you donate $15,000 of stock that you paid $5,000 for, your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%. Let’s also say you itemize deductions.

If you sold the stock, you’d pay $2,000 in tax on the $10,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $380 in NIIT.

By instead donating the stock to charity, you save $7,930 in federal tax ($2,380 in capital gains tax and NIIT plus $5,550 from the $15,000 income tax deduction). If you donated $15,000 in cash, your federal tax savings would be only $5,550.

3 important considerations

There are a few things to keep in mind when considering a stock donation:

1. The charitable deduction will provide a tax benefit only if your total itemized deductions exceed your standard deduction. For 2025, the standard deduction is $15,750 for singles and married couples filing separately, $23,625 for heads of households, and $31,500 for married couples filing jointly.

2. Donations of long-term capital gains property are subject to tighter deduction limits. The limits are 30% of your adjusted gross income for gifts to public charities and 20% for gifts to nonoperating private foundations (compared to 60% and 30%, respectively, for cash donations).

3. Don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

A tried-and-true year-end tax strategy

If you expect to itemize deductions on your 2025 tax return, making charitable gifts by December 31 is a great way to reduce your tax liability. And donating highly appreciated stock you’ve hesitated to sell because of the tax cost can be an especially smart year-end strategy. To learn more about minimizing capital gains tax or maximizing charitable deductions, contact us today.

© 2025